Coping with the recession

For Immediate Release
2 February 2009

Coping with the recession

Managing cash flow is the key for NZ
businesses to ride 2009 economic storm

Improving cash flow should be the top priority for all New Zealand business owners in 2009, if their companies are to cope with much tougher trading conditions flowing from the global economic recession.

That’s the view of Grant Hewson, general manager of Accomplish Ltd, which has almost 20 years’ experience providing accounting software designed specifically for small to medium business enterprises around New Zealand.

“While we must remain positive in these tough times, you don’t need a crystal ball to realize we’re all facing a difficult new year,” Grant says. “Every day the media is full of gloomy reports on the economy. Of course, it’s the big company failures and wholesale redundancies which hit the headlines.

“But you hardly ever hear about the impact on the thousands of small to medium business enterprises which represent the backbone of our economy, and how they are being buffeted by the same waves of economic adversity that are sinking many larger entities.”

So how do small businesses best keep their heads above water?

Grant replies: “Whether you’re a farmer in Southland, a small retailer in Christchurch, a design company in Wellington, a self-employed tradesperson in Hamilton, or a chemist in Kaitaia, no matter what type of business you run, or where located, the universal answer is: Managing cash flow – always ensuring you have enough cash in the bank to meet your business and personal obligations.

“Obviously, that can be easier said than done. But you can work towards that goal by ensuring that your accounting records are kept right up to date, and by keeping close watch on how your business is progressing, in terms of sales and revenue, as well in controlling costs, regularly every month, or even more frequently if required.

He adds: “You need to know how you are tracking in terms of profit or loss each month, as well as a cumulative tally for the financial year, and how those monthly and year-to-date performances compare to your budget. If your planned revenue and profits are running below budget, you need to either seek extra business or to trim costs accordingly. You should also adjust your forward forecasts so they remain realistic and viable.

“It’s also vitally important to actively manage your cash flow. Are customers paying on time? With the downturn, many will be taking longer to pay their bills, and possibly a lot longer if they themselves are struggling for cash. If a bill remains unpaid for two or three months, that’s a sign of a customer with his or her own cash flow problems, which could transfer to your business if you do not chase them up,“ Grant says.

“By keeping close track of all customers, you can build up a reliable debtor collection profile -- showing what percentage of debts are paid on time or within 30 days, within 60 days, or 90 days or even longer. You can then prepare your own cash flow forecast showing when you expect those proportions of revenue to arrive, balanced against your own operating costs each month, as well as any capital expenditure plans, and the impact those receipts and payments will have on your bank account balance.

“This cash flow forecast highlights which months can be expected to be in surplus, as well as any where a shortfall may arise and thus require you to seek extra revenue or to have extra funds to cover that period, whether savings, temporary finance or overdraft facilities. You may also need to defer capital expenditure, until you have extra revenue or finance to cover that capital cost.

“Having accurate and reliable reports of this nature are vital to help you not only keep on top of your business finances, but also to ensure you can make better, fully informed business decisions, and thus improve the overall performance and success of your business.

“All of this may sound difficult, but some modern accounting software actually does make it easy for even the non-accountant to keep accurate, up to date accounts, and to be able to pull off reliable reports at the push of a button at any time, to prepare or adjust budgets, and to manage cash flow and finances.”

Conversely, he warns that some accounting packages can be so complex and time-consuming that users need to be accounting or IT experts to drive them,

“So the typical small business owner really needs accounting software which is not only robust and reliable but, more importantly, also simple to use, user-friendly and trouble-free, backed up by good support services just in case you need help or advice.

“Your accountant or business adviser can probably advise you on a choice of accounting software that best suits your particular needs, but do ensure you choose a simple package that will save you and your accountant time, money and headaches in meeting everyday needs as well as complying with requirements like GST, taxation and year-end accounts.”

Since Accomplish was founded in the early 1990s, the company has worked alongside many new business start-ups, and knows the pitfalls and problems they can face. Its website, www.accomplish.co.nz , has a section devoted to advice on starting and running a small to medium business enterprise, as well as links to other useful resources. Today the company has some 20,000 software clients in New Zealand and Australia and is expanding into other global markets.

ENDS

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